BASI REDDY J. - This reference under section 66(1) of the Indian Income-tax Act, 1922, comes before us after the submission of a finding on a certain point by the Income-tax Appellate Tribunal in pursuance of an order of remand made by the Supreme Court, with direction that this court should deal with the matter de novo. The question that was referred to this court by the Income-Tax Appellate Tribunal was :
'Whether the sum of Rs. 75,040 is a receipt not from business but only of a casual and non-recurring nature exempt under section 4(3)(vii) of the Income-tax Act ?'
Before answering this question, in the light of the finding submitted by the Appellate Tribunal, it is necessary, for a proper understanding of that finding, to set out he history of this case through its various stages, noticing the stand taken by the assessee from time of time. The assessee (Jaldu Manikyala Row) was a merchant doing business in timber, tiles, furniture, ironware and hardware in partnership with others and on his own. His business activities were carried on at various places in the Andhra area transporting cargo and passengers. He belonged to a family of bankers and traders and he and his two brothers were among the foremost business men of Masulipatam.
On August 29, 1941, he entered upon a new venture and purchased for a sum of Rs. 62,500 a 25/56th share in a final mortgage decree for sale from one Sarvarayudu. The concerned mortgage deed had been executed on July 25, 1927, by Bommadevara Naganna Naidu, the then Zamindar of North West Vellar, in respect of a loan of Rs. 1,12,000 advanced by the said Sarvarayudu, his elder brother, and the latters wife. On a partition of the joint family, a 25/56th share in the mortgage dues fell to the share of Sarvarayudu. In 1935, the mortgagees filed a suit for the recovery of the mortgage money and on February 24, 1936, a preliminary decree was passed in their favour for Rs. 2,60,257 and a final decree followed on August 5,1937. It would appear that during this period Sarvarayudu got into financial difficulties and there was pressure on him by his own creditors, and so on August 29, 1941, he assigned his share in the mortgage decree to the assessee for a sum of Rs. 62,500 by a registered deed of transfer, under which the assessee agreed to discharge all the debts of Sarvarayudu and to give the residue, if any, to Sarvarayudu. According to the assessee, since he had no funds of his own, he had to borrow a sum of about Rs. 50,000 from his brother Venkata Subba Row, the latters son-in-law, Nagapotha Row and other bankers and money-lenders. Between the years 1941 and 1943 the assessee paid off a total sum of Rs. 59,360 to as many as seventy-six creditors of Sarvarayudu besides paying to Sarvarayudu himself on May 29, 1944, a sum of Rs. 640 being the balance of the consideration, and a further sum of Rs. 4,000 representing the interest for delayed payments.
In the meantime, the assessee along with the other decree-holders, had instituted proceedings for the execution of the decree and eventually brought to sale some of the mortgaged properties. Those properties were put to auction in eight lots and five of the lots fetched a sum of Rs. 3,45,000 and after deducting poundage of Rs. 5,550, the amount available for distribution amongst the joint decree holders in part satisfaction was Rs. 3,39,450. (The total amount due on the decree up to July 5, 1944, was Rs. 3,62,091.) Out of this, the assessee received on August 14,1944, a sum of Rs. 1,51,540 in part payment of his share of the decree debt. This included interest of about Rs. 22,000 accrued on the assessees share of the decree after he had purchased it. Thus, the amount realised by the assessee exceeded the price paid by him, by a sum of 89,040.
After deducting a sum of Rs. 10,000 towards the expenses for realisation and a further sum of Rs. 4,000 paid as interest to Sarvaryudu the Income-tax Officer held the assessee liable to pay income-tax on the balance of Rs. 75,040 as constituting profit from an adventure in the nature of trade and brought it to tax in the assessment year 1945-46. The question referred to this court relates to this sum.
It would be convenient at this stage to refer to the contentions raised by the assessee before the successive authorities, and the conclusions reached by them.
The contention of the assessee before the Income-tax Officer was that the profit made from the purchase and realisation of the decree was only a casual gain from a transaction outside his line of business and as it was not an income from an adventure in the nature of trade, it was not liable to tax. This contention was negatived by the income-tax Officer by holding that, throughout the venture, the assessee had no intention whatever of acquiring and possessing the mortgaged property, but his real intention was to make a profit out of the transaction. Another contention seems to have been raised before the Income-tax Officer, although it does not appear from his order, but was adverted to in the order of the Appellate Assistant Commissioner while dealing with the appeal preferred to him by the assessee from the order of the Income-tax Officer. That contention was that the assessee had taken over the decree to help his friend Sarvarayudu out of his financial difficulties and also to oblige his brother, Venkata Subba Row, who had purchased the equity of redemption in a part of the mortgaged property and was desirous of consolidating his position in regard to those lands. (It may be mentioned here that out of the eight villages which had formed the subject-matter of the mortgage, the equity of redemption in two of them had been purchased by the assessees brother Venkata Subba Row and the equity of redemption in a third village had been purchased by the latters son-in-law, Nagapotha Row). The stand taken by the assessee before the Income-tax Officer appears to have been that his object in acquiring the decree was two-fold : (1) to help Sarvarayudu out of his financial embarrassment, and (2) to assist his own brother Venkata Subba Row by ensuring that the execution of the decree was confined to the properties other than those in which Venkata Subba row was interested. The Income-tax Officer did not advert to this contention in his order and gave no finding thereon.
In the appeal preferred to the Appellate Assistant commissioner, however, the assessee took a somewhat different stand with regard to this aspect of the matter, namely, his intention in acquiring the decree. Grounds Nos. 1 and 2 in the memorandum of appeal related to the amount in question and grounds were as follows :
'1. Rs. 70,040 on account of the realisations under the transaction in O.S. No. 14/36, Sub-Court, Ellore. - The assessing officer erred in treating the amount of Rs. 70,040 as an income liable to tax. He ought to have found that the said amount is exempt and not liable under section 4(3)(vii) of the Indian Income-tax Act.
(a) The transaction in question was a solitary one and the receipts therefrom casual and non-recurring in nature, wholly unconnected with the regular and ordinary business of the assessee.
(b) In any event, it ought to have been found that the assessee took an assignment of the interest in the decree for the then worth of the property and more to accommodate a friend in need. Due to the subsequent rise in the value of the property, the assessee made a capital receipt and it was a windfall and nothing more.
(c) The assignment itself was with an object of acquiring the property and as a matter of fact, the assessee was one of the bidders. The assessing officers observations to the contrary are neither correct nor tenable.
(d) The assessing officer totally misconstrued the facts and misapplied the law and on both counts went wrong in including the amount under this head also in the Income.
2. Rs. 5,000 expenses of realisation of decree debt considered as excessive disallowed. - The disallowance of this amount is unjust and unfair.'
It will be seen from sub-grounds (b) and (c) that the stand taken by the assessee before the Appellate Assistant commissioner was that his intention in taking the assignment of the decree was to accommodate a friend in need, meaning thereby Sarvarayudu, and also to acquire the property by bidding at the court sale. It was not taken as a ground of appeal that the assessees object was also to help his brother, Venkata Subba Row, and the latters son-in-law, Nagapotha Row, by preventing the three villages in which they had an interest, from being sold in execution of the decree.
Although such a ground was not taken, the Appellate Assistant Commissioner dealt with it in the following manner :
'His intention to make a profit by the deal was clear. But he stated to the Income-tax Officer that he took over the debt to help Sarvarayudu in his difficulties and at the instance of his brother, Jaldu Venkata Subba Row, who had purchased a part of the mortgage property and was desirous of consolidating his (Venkata Subba Rows) position in regard to the properties purchased. He could produce no letters that passed between him and Sarvarayudu or other evidence to prove that his intention in negotiating the deal was to help Sarvarayudu and accommodate Venkata Subba Row......
I find no difficulty to hold that the appellant purchased the decree for a low price with the intention to make a large profit by executing the decree and realising its full value. The deal with Sarvarayudu was a concern in the nature of a trade. It was the adventure of a business man who was enabled to embark upon a business venture by his trading associations and activities.'
It is clear from the above extract that although the assessee had not specifically taken a ground in the appeal before the Appellate Assistant commissioner that one of his objects in entering upon the transaction was to help his brother Venkata Subba Row in addition to helping his friend Sarvarayudu, yet the Appellate Assistant Commissioner considered that point also and found that there was no evidence to support the case of the assessee as put forward before the Income-tax Officer that he had purchased the decree solely with a view to help his friend, Sarvarayudu, and his brother, Venkata Subba Row. In the end the Appellate Assistant Commissioner confirmed the order of the Income-tax Officer and dismissed the appeal preferred by the assessee.
The assessee then appealed to the Income-tax Appellate Tribunal on various grounds, but it is material to note ground No. 2(c)(vi) which sets out the intention with which the assessee had undertaken the venture in question. The relevant part of that ground runs thus :
In the particular set of circumstances and facts, the lower courts ought to have accepted the appellants contention that it was a transaction purely intended to oblige a friend in need with the alternative of even purchasing the property due to force of circumstances if inevitable. They should have appreciated that the appellant undertook to discharge innumerable creditors of Sarvrayudu only as a friendly gesture and that each of these acts does not separately go to build up a trade......'
It is clear from the above ground of appeal that for reasons best known to himself, the assessee had abandoned the contention he had raised before the Income-tax Officer that one of his objects in purchasing the mortgage decree was to help his brother, Venkata Subba Row, to consolidate his position in respect of the three villages which the latter and his son-in-law had acquired. It was apparently because such a ground was not taken before it, that the Appellate Tribunal did not consider and give a finding upon it. It, however, dealt with the connections that were actually raised before it. This is what the Tribunal said in paragraphs 3,4 and 5 of its order :
'3. No doubt the assessee had no similar transactions before or after. It is stated that he was persuaded to enter into this transaction as the property involved in the decree was in close proximity to some villages owned by his brother along with is own inclination to help Sarvarayudu out of his difficulty. By furnishing this background it is sought to be made out that the purchase of the decree is not in the regular line of business of the assessee, and further that, at the time of purchase the profit motive was not predominating, the primary idea being to try and possess the property adjoining his brothers. It is not clear how the assessee intended to go about acquiring all the 8 villages in question in this manner as he had after all only a 25/56 interest in the decree and that he had to all intents and purposes, next to nothing by way of cash to purchase the remaining interest.
4. It is not claimed that the assessee had surplus monies looking out for investments; as a matter of fact, he had to go to money-lenders to finance the purchase. The talks about zamindari abolition too could have been in the air about this time to dissuade persons from acquiring zamindaries. The Debt Relief Act IV of 1938 might have been in the picture. Nevertheless, in fixing the sum of Rs. 62,500 as the value of the share of the decree, the assessee had taken good care to see that this would be the amount of principal and interest that would be the minimum value of the decree even on the basis of the Debt Relief Act. He had no doubt taken a certain amount of risk with regard to the zamindari abolition talks, but he must have been fairly assured that in no case the value of the rights that he proposed to acquire would be less than the amount that he had agreed to pay. In this situation, while on the one hand he did not stand to lose at all, there was on the other a good off-chance for profit.
5. The above analysis of the facts reveal that though the venture was solitary in the sense that the assessee had no similar ones either before or after, he did not launch upon it as an investment and that at the time that he did it, the predominant motive was one of profit making.'
The Tribunal then went on to consider whether the transaction bore the essential characteristics of a venture in the nature of trade. The Tribunal pointed out that after the share in the decree was purchased, all the several operations incidental to the ultimate recovery of his outlay, had been done by the assessee in conjunction with the co-owners, culminating in the receipt of the amount in question. The legal proceedings had gone on over a period of years from 1941 to 1944. The sum involved was large. The assessee had borrowed from time to time not only for paying off the purchase price but also for the expenses of litigation. By the various legal proceedings in execution in which the assessee had taken part, the original value of the decree was very much enhanced. In the view of the Tribunal the inevitable effect of all the circumstances was that the assessee had engaged himself in a speculative venture in the nature of trade in the purchase and ultimate realization of the decree in question and the profit arising therefrom did not fall within the exemption contemplated by section 4(3)(vii) of the Income-tax Act. In the result the assessees appeal was dismissed.
However, on the application of the assessee, the Appellate Tribunal referred the question set out supra for the decision of the High Court under section 66(I) of the Income-tax Act. On a consideration of the facts and circumstances of the case, this court, by its judgment dated january 20, 1955, agreeing with the conclusions reached by the Appellate Tribunal held that the transaction in question was an adventure in the nature of trade and that it was a clear case of laying out money with a view to reap profit, and accordingly, answered the question referred to it in the negative.
On the High Court refusing to grant a certificate of fitness for appeal to the Supreme Court the assessee moved the Supreme Court, under article 136(1)(I) of the Constitution and obtained special leave to appeal from the judgment of the High Court.
In support of the appeal before the Supreme Court several contentions appear to have been raised but their Lordships considered only one of those contentions, and as they felt that on a vital question of fact the Appellate Tribunal had not given any finding, and without such a finding it was not possible to determine the question referred they remitted the case to the High Court with a direction to call for a finding from the Appellate Tribunal on that point and then dispose of the case in the light of the new finding of fact.
The point taken before the Supreme Court may best be stated in the words of their Lordships. This is what they say :
'Mr. Sastri appearing in support of the appeal raised various contentions. We shall notice only one of them now for reasons which will presently appear. Mr. Sastri contended that the appellant had taken an assignment of the decree at the instance of his brother and the latters son-in-law so that mortgaged properties purchased by them might not be put up to sale and the mortgage claim might be satisfied from the other properties. He contended that this would show that the acquisition of the decree was not a venture in the nature of trade and that by failing to come to a decision on this question the Tribunal had not made a full statement of the facts. It seems to us that if the decree had been acquired not solely with the idea of making a profit but also with the object of preventing the lands acquired by the appellants brother and the latters son-in-law from passing out of their hands, a substantial question might arise whether the acquisition of the decree was a venture in the nature of trade. We do not decide that question now. It is however clear that Mr. Sastri's grievance that the Tribunal has not come to a finding on the appellants contention that one of the objects in taking over an assignment of the decree was to assist his brother, is justified...... It seems to us that we cannot determine the question referred without a clear finding on this point. We have therefore, to refer the case back for such a finding. In this view of the matter, we have thought it right not to express any opinion on the points argued at the Bar. We say nothing as to the correctness of the judgment under appeal.
We, therefore, set aside the order under appeal and send the case back to the High Court with the direction that the court will refer the case back to the Tribunal for a finding as to whether the appellant had, in acquiring the decree, the intention of assisting his brother, Venkatasubba Row, and the latters son-in-law, Nagapotha Row by preventing the mortgaged properties purchased by them from being sold in execution of the decree. The High Court will dispose of the case on the new finding of fact so placed before it by the Tribunal after considering the entire case in the light of that finding. Costs in this court will abide the result.'
It will be observed that the contention which had been abandoned before the Appellate Tribunal was reagitated before the Supreme Court. However, in pursuance of the Supreme Courts direction, this court by an order dated December 19, 1958 called for a finding by the Appellate Tribunal as to whether the assessee had, in acquiring the decree, the intention to assist his brother, Venkatasubba Row and the latters son-in-law Nagapotha Row preventing the mortgaged properties purchased by them from being sold in execution of the decree.
By the time the case went back to the Appellate Tribunal, the assessee, Jaldu Manikyala Row, had died. He died on August 11, 1959. (His brother Venkata Subba Row gad dies sometime in the year 1949). The legal representatives of the assessee filed an application before the Appellate Tribunal praying that they may be permitted to adduce additional evidence touching the question on which a finding had been called for. The Tribunal rejected the application saying that the Supreme court had not given a direction to receive additional evidence.
We may say at once that the Tribunal was, in our opinion, perfectly right in refusing to admit fresh evidence because there was no such direction in the order of remand made by the Supreme Court. Besides, it would have been an improper exercise of discretion - assuming that the Tribunal had the power to receive additional evidence at that stage - to allow a party to let in additional evidence to buttress a point which had not even been raised before the Tribunal at the appeal stage.
The Tribunal then proceeded to deal with the question upon which it had been asked to submit a finding and said as follows, after setting put the relevant facts :
'The contention of the assessee was that the said amount was not taxable as being exempt under section 4(3)(vii) of the Income-tax Act. It was argued before the departmental officers that the assignment of the mortgage decree was taken over by the assessee not for the purpose of making a profit out of it but with a view to help Sarvarayudu, the original mortgage decree holder, assessees brother and brothers son-in-law (i.e,. Venkata Subba Row and Nagapotha Row mentioned supra), who had already purchased the equity of redemption in respect of three villages included in the mortgage decree. The departmental officials held against the assessee on both the contentions.
Before the Tribunal, the contention was only with reference to the exemption contemplated under section 4(3)(vii) as also pertaining to the assessees intended help to Sarvarayudu mentioned supra. There is nothing in the grounds of appeal filed before the Tribunal to indicate that the assessee ever contended before the Tribunal that this assignment of the decree was taken with a view to help the assessees brother and the assessees brother son-in-law (i.e. Venkata Subba Row and Nagapotha Row) mentioned supra. That is why the Tribunal has not considered any such contention in its order. We find in the Supreme Courts judgment an observations that the Tribunal had omitted to consider at all. Perhaps this observations has been as a result of a wrong statement made in the statement of the case submitted by the Tribunal to the High Court in paragraph 6, which is as follows :
'Before the Appellate Tribunal it was contended for the assessee that the transaction was a solitary one of a casual and non-recurring nature unconnected with the assessees business in timber entered into by the assessee at a time when an application for scaling down the decree was pending and abolition of zamindaries was in the air; and that the transaction was entered into in order to help a friend, namely, M. Sarvarayudu, and so as to secure and consolidate the position of his divided brother J. Venkata Subba Row, and another Nagapotha Row (son-in-law of Venkata Subba Row), who had already purchased the equity of redemption in three out of the eight villages.......'
This statement is wrong as no such contention was ever raised before the Tribunal and we do not find any such contention in the grounds of appeal before the Tribunal as stated supra.
Now that a finding is called for from the Tribunal, the question arose as to whether the Tribunal was to take in fresh evidence in regard to this question or whether it was to decide on the material available on record. Since we do not find any such direction given either in the Supreme Courts judgment or in the High Courts order we refuse to grant the request of the assessee to admit fresh evidence. A perusal of the order of the Appellate Assistant Commissioner indicates that the assessee had not led in any evidence to establish his contention. He has observed as follows in his order :
'He could produce no letters that passed between him and Sarvarayudu or other evidence to prove that thinks intention in negotiating the deal was to help Sarvarayudu and accommodate Venkata Subba Row.'
In view of the above, since the assessee has not established before the departmental officials that the assignment of the decree was taken in order to help the said Venakta Subba Row and Nagapotha Row, we hold that the assessees contention should fail. As already stated, there was no contention in regard to this matter ever raised before the tribunal when the appeal came to be considered by the Tribunal and hence there was no occasion for the Tribunal to deal with this contention. Now, since we have been directed to give a finding in regard to that aspect of the matter, we have given our finding on the evidence on record before the departmental officials holding that the assignment of the decree was not taken with a view to help the assessees brother and his brothers son-in-law.'
(We should like to mention that it was conceded before us by the learned advocate for the assessee that this statement regarding the non-production of evidence before the income-tax authorities, is factually correct. It was apparently for that reason that an attempt was made to induct additional evidence.
Thereafter, the matter came up before the High Court on January 6,1961. It was then represented to the court that the assessee was dead and steps had to be taken to bring the legal representatives on record. So the case was adjourned and it was directed to be posted for hearing after the legal representatives had been added. However, an unconscionably long time was taken to do this and ultimately they were brought on record on July 3, 1963. Thus the legal representatives of the assessee took nearly two and half years to complete the steps to bring themselves on record. This delay was due entirely to their laches.
Now, the question for out determination on this reference is, whether the purchase by the assessee of a share in the mortgage decree and the subsequent realisation of a substantial profit by taking a series of calculated steps, constitute an adventure in the nature of trade. It may now be taken as settled by a catena of Supreme Court ruling that the question whether or not a given transaction is a venture in the nature of trade, is in most case a mixed question of fact and law and as such is open to review by the High Court in the exercise of its jurisdiction under section 66 of the Income-tax Act, 1922. It is equally well settled that it is the province of the Appellate Tribunal to find primary evidentiary facts, and a finding on a question of fact should not be disturbed by the High Court except where it is shown to be unreasonable or reverse. It is also well established that for determining whether a venture is in the nature of trade, no general or universal test can be laid down and it is not possible to formulate a single criterion or apply an exclusive yardstick. The decision in a particular case must depend on the cumulative effect of, and the legitimate inference to be drawn from, the totality of circumstances present in that case.
However, certain general observations made by the Lord President (Normand) in Commissioner of Inland Revenue v. Fraser furnish a useful guide, since the facts in that case were closely similar to the facts in the case before us. The facts there were that towards the end of 1937, one Fraser, a woodcutter, instructed an agent to purchase for him whisky in bond to the value of about pounds 400. The order was completed in three parts, a one lot was purchased in December, 1937, for pounds 71, another in May, 1938 : for pounds 230 and the third in November of the same year for pounds 106, so that the total amount of the purchases was pounds 407. The whisky was purchased with the sole object of resale, if possible at a profit and a profit was in fact made, for he sold the whisky in three lots at a total price of pounds 1,131, and after allowing for expenses, there was a net profit of pounds 712. Fraser had never had any dealings in whisky before the ransactions, and he had none afterwards. He had no special knowledge of the whisky trade; took delivery of the whisky not did he have it blended or advertised. The sales, like the purchases, were carried out through an agent. The great increase in the value of whisky was due to the outbreak of war.
Upon these facts, the question arose whether the transaction was an adventure in the nature of trade. The commissioners held by a majority that an adventure in the nature of trade had not been carried on, that merely an investment had been made and subsequently realised, and that the profit was not assessable to income-tax. On a stated case, the court of session (First Division) reversed the determination of the Commissioner had held that the Commissioners had misdirected themselves as to the meaning of being engaged in 'an adventure in the nature of trade', and that in truth the transaction in question was an adventure in the nature of trade. In so holding, the Lord President (Normand) made the following instructive observations :
'It would be extremely difficult to hold that a single transaction amounted to a trade but it may be mush less difficult to hold that a single transaction is an adventure in the nature of trade....
It is in general more easy to hold that a single transaction entered into by an individual in the line of his own trade (although not part and parcel of his ordinary business) is an adventure in the nature of trade. But what is a good deal more important is the nature of the transaction with reference to the commodity dealt in. The individual who enters into a purchase of an article or commodity may have in view the resale of it at a profit, and yet it may be that this is not the only purposes for which he purchased the article or the commodity nor the only purpose for which he might turn it if favourable opportunity of sale does not occur. In some of the cases the purchases of a picture has been given as an illustration. An amateur may purchase a picture with a view to its resale at a profit, and yet he may recognise at the time or afterwards that the possession of the picture will give him aesthetic enjoyment if he is unable ultimately, or at his chosen time, to realise it at a profit. A man may purchases stocks and shares with a view to selling them at an early date, at a profit, but if he does so, he is purchasing something which is itself an investment, a potential source of revenue to him while he holds it. A man may purchase land with a view to realising it at a profit, but it also may yield him an income while he continues to hold it. If he continues to hold it, there may be also a certain pride of possession. But the purchaser of a large quantity of a commodity like whisky, greatly in excess of what could be used by himself, his family and friends, a commodity which yields no pride of possession, which cannot have turned to account except by a process of realization, I can scarcely consider to be other than an adventure in a transaction in the nature of a trade, and I can find no single fact among those stated by the Commissioners which in any way traverses that view. In my opinion the fact that the transaction was not in the way of the business (whatever it was) of the respondent in no way alters the character which almost necessarily belongs to a transaction like this. Most important of all, the actual dealings of the respondent with the whisky were exactly of the kind that take place in ordinary trade.'
Likewise in Venkataswamy Naidu & Co. v. Commissioner of Income-tax in which the facts were similar to those in the instant case the Supreme Court enunciated a test which may be aptly applied to this case. In that case, the assessee, a firm acting as managing agents of certain mills, purchased four plots of land under four separate sale deeds for a total consideration of about Rs. 8,712. After about five years, those properties were sold in two lots to the mills for a total consideration of Rs. 52,600, thus yielding a profit of Rs. 43,887. There was no evidence to show that the assessee had purchased the lands for agricultural purposes or that it had acquired them as in investment. It was found that the plots had been purchased by the assessee wholly and solely with the idea of selling them at a profit to the mills. Upon these facts, the Supreme Court, agreeing with the High Court, held that the sum of Rs. 43,887 was not a capital accretion but was a profit arising from an adventure in the nature of trade. In the course of the judgment, Gajendragadhkar J. speaking for the court, observed :
'In this connection, it would be relevant to refer to another test which is sometimes applied in determining the character of the transaction. Was the purchase made with the intention to resell it at a profit It is often said that a transaction of purchase followed by the resale can either be an investment or an adventure in the nature of trade. There is no middle course and no half-way house. This statement may be broadly true; and so some judicial decisions apply the trust of the initial intention to resell in distinguishing adventures in the nature of trade from transactions of investment. Even in the application of this test, distinction will have to be made between initial intention to resell at a profit which is present but not dominant or sole; in other words, cases do often arise where the purchaser may be willing and may intend to sell the property purchased at profit, but he would also intend and be willing to hold and enjoy it if a really high price is not offered. The intention to resell may in such cases be coupled with the intention to hold the property. Cases may, however, arise where the purchase has been made solely and exclusively with the intention to resell at a profit and the purchaser has no intention of holding the property for himself or otherwise enjoying or using it. The presence of such an intention is no doubt a relevant factor and unless it is offset by the presence of other factors, it would raise a strong presumption that the transaction is an adventure in the nature of trade. Even so, the presumption is not conclusive and it is conceivable that, on considering all the facts and circumstances in the case, the court may, despite the said initial intention, be inclined to hold that the transaction was not an adventure in the nature of trade. We thus come back to the same position and that is that the decision about the character of a transaction in the context cannot be based solely on the application of any abstract rule, principle or test and must in every case depend upon all the relevant facts and circumstances.'
Now the facts found by the Appellate Tribunal in the present case are the following : The assessee belonged to a trading family and was doing business in various lines. He negotiated and purchased from Saravarayudu, who was in financial difficulties, a mortgage decree for, about a third of its face value and undertook a planned and sustained operation to realise the full value of the decree. He had to pay off the numerous creditors of Sarvarayudu and incur heavy legal expenses. On his own showing, for that that purposes, he had to borrow moneys from banker bankers and money-lenders. Shrewd and experienced business man that he was, he set about this task methodically and in a business like manner and ultimately reaped a net profit of Rs. 75,040. The Tribunal has rejected his case that he had entered into the transaction with the two-fold object of helping a friend out of his difficulties and of accommodating a brother and his son-in-law. The Tribunal has further found that the intention of the assessee in undertaking this venture was only to make a profit. It was a scheme clearly planned and skilfully carried out.
On these findings of fact, which we are satisfied are correct, we have no hesitation in agreeing with the conclusion reached by the Tribunal that the transaction in question was an adventure in the nature of trade. It was no doubt a single plunge in unfamiliar waters, but it was a plunge 'in the waters of trade.' Indeed, in the circumstances of this case, the question may well be asked : If it was not a trading transaction, what was it To adopt the words of Lord Radcliffe in Edwards v. Bairstow what detail does it lack that prevents it being an adventure in the nature of trade, or what element is present in it that makes it capable of being aptly described as anything else ?'
On behalf of the assessee it was contended before us that when the assessee purchased the decree, he could not have hoped to make a profit because at that time, an application for scaling down the decree debt under the provision of the Madras Agriculturists Relief Act No. IV of 1938, filed by one Addepalli Ramaseshayya, who had purchased the equity of redemption in a portion of the hypotheca, was pending and further, the proposal to abolish zamindaries was in the air. It seems to us, however, - as subsequent events showed - that the risks and fears unreal or exaggerated. Perhaps it suited the assessee to paint a very gloomy picture so as to convince Sarvarayudu that a great favour was being done by a selfless friend and induce him to part with the decree for a low amount. The said Ramaseshayya had acquired an interest only in a fraction of the hyoptheca and neither the zamindar who had mortgaged the properties nor Venkatasubba Row and his son-in-law, who were bankers and business men, could possibly claim the benefits under Act IV of 1938. Ultimately even the application filed by Ramaseshyya was dismissed. As for the threatened legislation, if the sword of Damocles was hanging over the heads of zamindars at the time the assessee negotiated the deal in the year 1941, the position was much the same in the year 1944, when the properties were sold in public auction, and five out of the eight villages fetched almost the full value of the decree. Obviously, the fear to such legislation did not deter bidders from offering a high price for the lands. Furthermore, as found by the Tribunal, by paying a very low price for the decree, the assessee had taken good care to see that if the worst came to the worst, he would not lose in the bargain but stood to gain in some measure.
It was next contended on behlaf of the assessee that the transaction in question was a solitary venture and was not in the line of business of the assessee and it could not therefore be regarded as a venture in the nature of trade. In support of this argument, the learned advocate for the assessee relied upon the decision of the Supreme Court in Saroj Kumar Mazumdar v. Commissioner of Income-tax. In our considered view, that decision is of no assistance to the assessee in this case as the facts there are far removed from the facts here. In that case, the Supreme Court disagreed with the view taken by the Appellate Tribunal and found the following facts : The assessee, who was engaged in various types of business activities, was a shareholder and director or managing director of several companies, and he was also a partner in a firm of engineering works. With a view to acquiring a plot of land for the purpose of building a residential house for himself and constructing a workshop in connection with his business activities, the assessee had paid, in pursuance of an agreement entered into in January, 1946, a sum of Rs. 32,748 in all to insurance society - the amount so paid being 25 per cent. of the estimated of a plot of land comprised in a land development scheme undertaken by the society. But for reasons beyond the assessees control, the scheme was not pushed through expeditiously. In the meantime, the assessees business activities began to decline and he was afraid of losing the the advance he had paid. At that juncture, the assessee was able to negotiate for the assignment of his rights under the agreement to a certain Rani who, having taken a fancy for the plot, made an attractive offer. With the concurrence of the society, the assessee assigned his rights under the agreement for a consideration of Rs. 1,07,000 and received the amount in April, 1947. As a consequence, he made a profit of Rs. 74,485 out of deal.
On those facts and in those circumstances, the question arose whether the transaction carried out by the assessee amounted to an adventure in the nature of trade, so as to render the profit arising therefrom taxable under section 10 of the Income-tax Act. Their Lordships of the Supreme Court found that there was no clear evidence in support of the inference drawn by the Appellate Tribunal that the land had been purchased by the assessee with the sole intention of selling it later at a profit, but on the contrary, their Lordships found that the initial intention with which the assessee had bought the land was to build a residential house and a workshop upon it. Thus the existence of a profit-making motive at the crucial point of time was altogether ruled out. Consequently their Lordships held that the possibility or the probability that the site might appreciate in value did not necessary lend itself to the inference that the transaction was a venture in the nature of trade, as distinguished from capital investment. Their Lordships concluded :
'In all the circumstances of this case, the total impression created on out mind is that it has not been made out by the department that the dominant intention of the appellant was to embark on a venture in the nature of trade, when he entered into the agreement which resulted in the profits sought to be taxed'.
In the present case, however, we have round, agreeing with the view of the Tribunal, that the sole intention of the assessee in acquiring the decree was to make a profit. Therefore, the ratio of that decision does not apply to the present case.
To sum up : In the instant case, the thing acquired was a half share in a mortgage decree. It was in no sense an investment, and that was not the assessees case either. The thing acquired could not give the assessee pride of possession or aesthetic enjoys, enjoyment. It could not be turned to account except by a process of realisation. His object in acquiring it was not, as pleaded by him, to help a friend or assist a relation; such altruistic motives were discounted by the Tribunal and, in our view, rightly. The decree was purchased with the sole intention of making a profit out of it. The favourable terms on which the properties to sale constituted an adventure in the nature of trade. The venture, looked at as a whole, bore clear indicia of a trading activity. The fact that the profit represented the fruits of an isolated transaction is immaterial for income-tax purposes, since the profit arising from an isolated transaction is assessable to tax, provided an adventure in the nature of trade has been embarked upon. The profit arising from even an isolated adventure may be taxable as business profit, for business includes a single adventure in the nature of trade. In our opinion, therefore, the profit in question was properly assessed to tax under section 10 read with section 2(4) of the Income-tax Act, 1922.
For the forgoing reasons, we would answer the question referred to this court in the negative and against the assessee. The assessee will pay the costs of the Commissioner of Income-tax. Advocates fee is fixed at Rs. 250.